Sustainable finance for forest and landscape restoration - UN FAO
Andrew Lockley
Executive summary
The international community has set ambitious goals for forest and landscape restoration (FLR), including reaching land degradation neutrality by 2030 (Target 15.3 of the Sustainable Development Goals), restoring 150 million hectares by 2020 in the framework of the Bonn Challenge, and restoring 350 million hectares by 2030 under the New York Declaration on Forests. The technical feasibility of meeting these targets has been proved. However, implementation faces a number of barriers. In addition to unclear tenure rights, lack of implementation capacity and continued incentives for unsustainable land uses, one of the chief barriers is insufficient awareness of financing opportunities and investors’ lack of understanding of FLR.
Between USD 36 billion and USD 49 billion are required every year to achieve agreed FLR targets, a limited amount in comparison to climate finance (USD 350 billion to USD 640 billion annually). Where can this money be found? There are many sources for raising these funds, among them: development cooperation resources, climate finance, non-governmental organizations (NGOs), State budgets, environmental funds, crowdfunding and the private sector. With governments facing more and more funding shortages and development cooperation having limited growth margins, long-term financing solutions may increasingly rely on the private sector and on instruments enabling self-sustained financing such as environmental funds.
Private-sector investors – businesses and individuals – are the key to long-term FLR finance, whether as social investors in the framework of corporate social responsibility or as impact investors looking for a mix of social and financial returns. More than ten private equity impact funds (already operational or in design) seek to invest in landscape restoration projects. They are small relative to the needed budget (generally limited to USD 100 million), but even so it is a challenge to find bankable projects. This challenge is what makes traditional investors (pension funds, commercial banks) reluctant to invest in FLR even though they have available capital and interested potential clients.
Beyond addressing the communication and awareness gap between investors and FLR project promoters and implementers, many barriers are to be overcome in order to make the FLR project pipeline attractive. FLR values should be recognized, value chains need to be developed and aligned to a landscape vision, local champions have to be trained and local communities enabled, positive
externalities and market opportunities (e.g. carbon) have to be harnessed, and investment risks must be covered.
Building the enabling environment that makes a landscape “ready for investment” in FLR is critical. For this, governments, NGOs and development cooperation institutions have an important role to play in developing capacities of landscape stakeholders (e.g. local decision-makers, NGOs, small farmers, cooperatives), clarifying costs and benefits of FLR investments, establishing marketplaces for FLR and developing risk coverage mechanisms. This initial “readiness phase” can be covered through different forms of investment from development agencies, NGOs and private equity impact funds that have their own technical assistance facilities. Landscape insurance pioneers such as the Latin American Development Bank (CAF) and the United States Agency for International Development (USAID) have demonstrated the design of partial risk guarantee mechanisms for FLR.
Proactive States have developed integrated financing strategies and mechanisms blending different capital sources (national, international, public, private) to invest in FLR in both the readiness and implementation phases. National forest or environmental funds are appropriate for addressing the multiple objectives of FLR, as shown by examples from Costa Rica and Rwanda. FLR finance also shows potential for innovation, as demonstrated by the emergence of non-traditional funding mechanisms such as crowdfunding, based on citizen participation FLR can offer substantial internal rates of return (7 to 79 percent, according to The Economics of Ecosystems and Biodiversity [TEEB]), which is a strong indication of the urgency to intensify pragmatic actions towards sustainable finance for FLR. Compiling the business case and supporting the creation of adapted marketplaces could start a snowball effect of investor interest in
restoration.
Who can do what?
• Governments can integrate FLR into their budget planning at the national and subnational levels, as is done in Canada and the United States of America. They can support the design of environmental funds, such as national forest funds that channel resources for FLR. They can “green” their investment funds, such as sovereign wealth funds and pension funds, to avoid investing in sectors and activities that harm forests and landscapes.
• Climate finance operators (e.g. the Green Climate Fund and the Adaptation Fund) should acknowledge FLR’s joint role in mitigation and adaptation and allocate resources accordingly.
• International development cooperation agencies could adapt their financing instruments to FLR. Since their financing mechanisms address multiple sectors, they should be able to blend their resources for intersectoral landscape restoration projects.
• NGOs (international, national and local) could intensify their collaboration to finance and implement more field restoration projects.
• Private companies can further allocate funds to FLR through corporate social responsibility (CSR) initiatives, insetting and impact marketing approaches. They can integrate FLR in operational funds so as to mainstream it in business operations and value chains as part of a long-term business strategy. Greening of supply chains through deforestation-free procurement will also be vital.
• Private equity impact funds involved in FLR can communicate on their successful investment cases to attract traditional investors to large-scale FLR projects. In general, FLR stakeholders should support these private impact funds because they are at present the only classical investors willing to invest in FLR at scale. Success in engaging them will be critical to the
whole FLR finance sphere.
• Traditional and institutional investors should continue innovating for FLR even at a small
scale while the FLR project pipeline is developing. Restoration bonds may be part of the solution when large-scale projects enter the pipeline.
• Citizens – individuals and communities – can create, foster and support FLR initiatives such
as crowdfunding platforms and green bank cards. As consumers, citizens have a responsibility
to purchase goods and services from sustainably managed and restored landscapes.
Alliances and partnerships that bring all these stakeholders together may offer strong
opportunities for implementing FLR at scale. Efforts such as Initiative 20×20 in Latin America and
the Great Green Wall for the Sahara and the Sahel Initiative are beginning to demonstrate successes
in upscaling FLR efforts that could inspire other regions of the world.
A number of innovative approaches show promise, such as the public–private partnership
model of the Land Degradation Neutrality Fund, being developed by the Global Mechanism of
the UNCCD; and The Landscape Fund, being developed under the leadership of the Center for
International Forestry Research (CIFOR), which plans to issue restoration bonds following the
model of green bonds.
In a nutshell, many opportunities exist to mobilize funds for FLR. Continuous dialogue among all FLR stakeholders, including investors of all types and FLR project promoters and implementers,
must be maintained so that all can benefit from the full range of win–win opportunities that FLR offers.